Company Analysis - Commissioned /

Aluminium Bahrain: Lower realised prices, higher depreciation trigger 2019f/20f earnings downgrade

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

    Tellimer Research
    12 December 2019
    Published byTellimer Research

    We update our estimates for Aluminium Bahrain (Alba) post Q3 19 net profit of BHD11.0mn, and roll forward our valuation by a year. We assume lower aluminium and alumina prices for 2019f-23f which reduces our valuation estimate for Alba by 13% to BHD0.65/share (previously BHD0.75/share). The stock trades at a 2020f PE of 19.9x and EV/EBITDA of 6.6x (versus its peers’ 12.3x and 8.0x, respectively). 

    2019f-20f realised prices trimmed by 2-9%, 2021f-23f by 9-13%. We now estimate 2019f and 2020f realised prices of US$2,008/tonne and US$1,884/tonne (previously US$2,042 and US$2,062). For 2021f-23f, we now assume 9-13% lower realised prices. This is due to: (1) lower LME aluminium prices (using Bloomberg forecasts – see Figure 1); and lower physical premiums (see Figure 2). We maintain our long-term LME aluminium price assumption of US$2,150/tonne and all-in delivered alumina price assumption of US$400/tonne.

    Higher depreciation from Q4 19. With the official commissioning of Line-6 in Q4 19, we expect depreciation expense to increase from BHD71mn to BHD90mn (4.5% effective depreciation) in 2019f. We have also increased the effective depreciation from 2020f to 8.4% (previously 4.5%).

    Higher interest charges from 2020f. Earlier this month, Alba refinanced its US$1.5bn syndicated loan facility for Line-6 expansion. While the loan carries an interest margin of 300bps (previously 325bps) over LIBOR, it now has an 8-year tenor versus 4-year tenor previously. As a result, we estimate 8% higher finance costs in 2020f, while our estimates for 2021f-30f increase by 22% (on average).